Detroit Water and Sewerage Department

Transcription

1 Detroit Water and Sewerage Department 735 Randolph Street Detroit, Michigan (313) Office Meeting Agenda Monday, October 12, :00 AM Finance Committee Meeting 5th Floor Board Room, Water Board Building Finance Committee

2 AGENDA ITEM #3 Finance Committee Meeting Agenda October 12, CALL TO ORDER 2. ROLL CALL 3. APPROVAL OF AGENDA 4. APPROVAL OF MINUTES 5. PUBLIC PARTICIPATION 6. OLD BUSINESS August 26, 2015 (Page 2) September 16, 2015 (Page 5) A. Bondholder Consent and 2015 Financing update (verbal) B. Budget Schedule and FY CIP Rollout update (Page 8) 7. NEW BUSINESS A. Bifurcated FY2016 Budget (Page 9) B. Sewer System Bond Authorizing Resolutions State Revolving Fund (Page 22) C. Water System Bond Authorizing Resolutions State Revolving Fund (Page 26) 8. REPORTS A. Customer Service Division Report (verbal) B. CFO Report (verbal) - Technology Update C. Monthly Information Reports - Attrition Chart (Page 30) - GLWA/ DWSD-R Project Implementation Team (P.I.T) and Bifurcation update (Page 31) - Update- Wholesale Customer Assignments (Page 33) 9. Look Ahead Schedule 10. OTHER MATTERS 11. ADJOURNMENT - Schedule Meetings Special Meeting Request for Week of October 19, 2015 Finance Committee November 2015 Meeting TBD Detroit Water and Sewerage Department Page 23 Printed on 10/7/2015 Page 1

3 AGENDA ITEM #4A Detroit Water and Sewerage Department Meeting Minutes - Draft Finance Committee 735 Randolph Street Detroit, Michigan (313) Office Wednesday, August 26, :00 PM 5th Floor Board Room, Water Board Building Finance Committee Meeting 1. CALL TO ORDER Co-Chairman Williams called the meeting to order at 12:00 PM. 2. ROLL CALL Present: 1 - Excused: 1 - Michael Einheuser Linda Forte 3. APPROVAL OF AGENDA Co-Chairman Williams requested approval of the agenda. A motion was made by Co-Chairperson Einheuser, seconded by Co-Chairperson Williams that this be approved. The motion carried by the following vote: Aye: Excused: Williams and Co-Chairperson Einheuser Co-Chairperson Forte 4. APPROVAL OF MINUTES Co-Chairman Williams requested approval of the minutes. A motion was made by Co-Chairperson Einheuser, seconded by Co-Chairperson Williams that this be approved. The motion carried by the following vote: Aye: Excused: Williams and Co-Chairperson Einheuser Co-Chairperson Forte 5. PUBLIC PARTICIPATION This was none. Detroit Water and Sewerage Department Page 1 Page 2

4 Finance Committee Meeting Minutes - Draft August 26, OLD BUSINESS Commissioner Forte joined the meeting at 12:09 PM. A. Bondholder Consent and 2015 Financing Update Lee Doner of First Southwest presented to the Board a verbal update regarding the final stages of the Bondholder Consent and 2015 Financing. Co-Chairman Williams requested the minutes reflect that the process that we are going through now is part of the annual reveiw process initiated by the rating agencies themselves. 7. NEW BUSINESS A. Energy Management Program Nicolette Bateson, Chief Financial Officer - verbal update. B. GLWA/ DWSD-R Project Implementation Team (P.I.T) Update Nicolette Bateson, Chief Financial Officer - verbal update regarding stand up. A presentation to the Board will be scheduled in September. C. Finance (Budget, Rates, and CIP) Planning Calendar Nicolette Bateson, Chief Financial Officer - verbal update of what the calendar would look like over the next six months. 8. REPORTS A. Customer Service Report Darryl Latimer, Deputy Director/Customer Service Officer, stated the Customer Service Group focus is on keeping customers in their payment plans. Nearly 40,000 customers are in payment plans. Action: Commissioner Williams requested monthly reports on the status of accounts with balances greater than 60 days (Finance binder, page 11). B. Financial Performance Report Chief Financial Officer Nicolette Bateson and Bart Foster of The Foster Group, presented monthly preliminary/projected financial operations of the water and sewer systems for August Detroit Water and Sewerage Department Page 2 Page 3

5 Finance Committee Meeting Minutes - Draft August 26, 2015 C. CFO Report Chief Financial Officer Nicolette Bateson - verbal update Highlights: Implementing two payroll systems, Standing up ORACLE fusion D. Monthly Information Report Public Finance Manager Jon Wheatley presented an update regarding the wholesale customer contract assignments. 9. LOOK AHEAD SCHEDULE Finance Committee 7:30 AM Wednesday, September 16, OTHER MATTERS This was none. 11. ADJOURNMENT A motion was made by Co-Chairperson Forte, seconded by Co-Chairperson Einheuser that this be approved. The motion carried by the following vote: adjourned Aye: 3 - Co-Chairperson Forte, Williams and Co-Chairperson Einheuser Detroit Water and Sewerage Department Page 3 Page 4

6 AGENDA ITEM #4B Detroit Water and Sewerage Department Meeting Minutes - Draft Finance Committee 735 Randolph Street Detroit, Michigan (313) Office Wednesday, September 16, :30 AM 5th Floor Board Room, Water Board Building Finance Committee Meeting 1. CALL TO ORDER Commissioner Forte called the meeting to order at 7:31 AM. 2. ROLL CALL Present: 3 - Linda Forte, Michael Einheuser and Jody Caldwell 3. APPROVAL OF AGENDA A motion was made by Co-Chairperson Einheuser, seconded by Co-Chairperson Caldwell that this be approved. The motion carried by the following vote: approved Aye: 3 - Co-Chairperson Forte, Co-Chairperson Einheuser and Caldwell Finance Committee Binder of Sponsors: Attachments: Bateson BOWC Finance Committee Binder (Agenda items support/reference materials) 4. APPROVAL OF MINUTES Minutes of August 26, 2015 (not available for ) This was placed on the table 5. PUBLIC PARTICIPATION This was None 6. OLD BUSINESS Detroit Water and Sewerage Department Page 1 Page 5

7 Finance Committee Meeting Minutes - Draft September 16, 2015 A. Bondholder Consent and 2015 Financing update - verbal Presenter, Chief Financial Officer Nicolette Bateson B. Budget Schedule and FY CIP Rollout update - Page 1 Presenters, Chief Financial Officer Nicolette Bateson (CIP Schedule), and Board Technical Advisor Tarolyn Buckles (Financial Planning calendar) Co-Chair Forte suggested the CIP schedule and Financial Planning calendar be consolidated into one Financial Planning Calendar Sponsors: Attachments: Bateson FY 2017 Financial Planning Calendar_premiminary C. Technology updates - verbal Information Technology Director Dan Rainey discussed status of the proposed Five-year IT Transition Plan of the bifurcation of GLWA/DWSD 7. NEW BUSINESS This was None 8. REPORTS A. Customer Service Division Report - verbal Deputy Director Darryl Latimer stated Customer Service is staying vigilent in keeping customers current. To address language barriers, DWSD's phone system has the option for Spanish and Arab-speaking customers to hear messaging recorded in their language, door tags were translated to Spanish and Arab and are availble for distribution, and the Department is searching to hire bi-lingual Customer Service Representatives in those languages. B. Financial Performance Report - Page 2 Bart Foster of The Foster Group, presented a report of unaudited materials and analysis on the Department's financial performance with a focus on billed sales and revenues. C. CFO Report - verbal Chief Financial Officer Nicolette Bateson Detroit Water and Sewerage Department Page 2 Page 6

8 Finance Committee Meeting Minutes - Draft September 16, 2015 D. Monthly Information Reports - Pages 19, 21 - GLWA/DWSD-R Project Implementation Team (P.I.T) and Bifurcation Budget update - Wholesale Customer Contract Assignments Chief Financial Officer Nicolette Bateson presented the monthly update from the project implementation Team (PIT) regarding the separation and start-up of DWSD-R and GLWA as independent agencies. Public Finance Manager Jon Wheatley presented an update on the wholesale customer contract assignments. 9. LOOK AHEAD SCHEDULE Biosolids Tour, September 16, 2015 at 2:00 PM Finance Committee, October 12, 2015 at 8:00 AM 10. OTHER MATTERS This was none. 11. ADJOURNMENT There being no further business the meeting adjourned at 9:06 PM. A motion was made by Co-Chairperson Einheuser, seconded by Co-Chairperson Caldwell that this meeting be adjourned. The motion carried by the following vote: adjourned Aye: 3 - Co-Chairperson Forte, Co-Chairperson Einheuser and Caldwell Detroit Water and Sewerage Department Page 3 Page 7

9 CAPITAL MANAGEMENT GROUP (CMG) Capital Improvement Program (CIP) FY 2017 CIP (July 1, June 30, 2021) SCHEDULE TENTATIVE Dates in bold indicate actual/completed milestone dates AGENDA ITEM #6B MILESTONE DATE EVENT July 31, 2015 August 11, 2015 August 18, 2015 August 31, 2015 October 8, 2015 October 12, 2015 October 19, 2015 October 27, 2015 November 17, 2015 November 18, 2015 November 19, 2015 December 10, 2015 TBD January 2016 TBD January 2016 TBD January 2016 TBD - February 2016 TBD - March 2016 TBD - March 2016 March 2016 Memo to Division Heads to Submit New CIP Project Proposals Due Date for CMG/Finance to Receive New Project Proposals from Division Head/Group Leaders/Managers Memo to Division Heads to Electronically Complete 5 Year CIP Projection Worksheets Deadline for 5-Year CIP Projection Work Sheets to be Electronically Completed by Project Managers/Group Leaders CIP Introduction to Customers at Rates Work Group Meeting Draft CIP to Division Heads and DWSD-R for their Review and Comments Due Date for Division Heads and DWSD-R to Submit their Comments on the Draft CIP to CMG Draft Proposal Release (no presentation) at AWG Meeting CIP Rollout Briefing to Customers-10:00 a.m. at SEMCOG Proposals Presentation to BOWC at BOWC Meeting Proposals Presentation to GLWA at GLWA Meeting Review and Discussion of Preliminary CIP with ORCAP, GLWA - Capital Planning, GLWA-Operations & Resource Committees CIP Update to BOWC Workshop Final CIP Presentation to ORCAP Committee for Review and Approval Final CIP Presentation to GLWA Capital Planning, Operations & Resources Committees BOWC ORCAP Committee Approval of the CIP BOWC Approval of the CIP GLWA Approval of the CIP Publish CIP as of 10/8/15 Page 8

10 AGENDA ITEM #7A City of Detroit Water & Sewerage Department Financial Services Group Finance Committee Communication Date: October 12, 2015 To: Board of Water Commissioners Finance Committee From: Nicolette Bateson, Chief Financial Officer Re: Bifurcated FY2016 Budget The effective operational date for the stand-up of the City of Detroit Retail Water & Sewer System and the Great Lakes Water Authority is January 1, This date is the midpoint of each entities fiscal year. As a result, a number of resources are working collaboratively to establish a bifurcated mid-year budget, recognizing that there are a number of fluid, concurrent work streams. For that reason, the proposed approach is to use the initial FY 2016 budget approved by the Board of Water Commissioners as the baseline for the bifurcated budget. There will be some amendments to that budget which are quantifiable to varying degrees. The overall net impact, however, is not expected to be material at this point. To the extent that there are updates to the budget, future amendments will be proposed. The following reports are attached. Action Item: Report from Marcus Hudson, Chief Financial Officer, Detroit Water & Sewer Retail System Background: Report from The Foster Group re: the FY 2016 GLWA / DWSD-R Budget This report highlights a number of the nuances related to bifurcating the budget which we will continue to work through for FY 2016 in addition to considerations as we prepare budgets for future years. Coordination: Report from Jenny Casler, CPA, Manager of Financial Planning & Analysis presented to the Great Lakes Water Authority Board on October 2, 2015 regarding the GLWA FY 2016 Operational Budget (January 1, 2016 to June 30, 2016) Page 9

11 City of Detroit Water & Sewerage Department Financial Services Group Finance Committee Communication Date: 10/12/2015 To: Board of Water Commissioners Finance Committee From: Marcus Hudson, Chief Financial Officer, Detroit Water & Sewer Retail System Re: DWSD-R O&M Budget Bifurcation Background: In accordance with section 5.6 of the Regional Sewage Disposal Lease and section 5.6 of the Regional Water Supply System Lease, the Great Lakes Water Authority is required to adopt a stub year budget on or prior to the effective date of the leases through June 30, Per each of these sections of the respective leases, the stub year s budget shall be based on a bi-furcation between the Regional Water System and the Local Water System of the budget adopted by DWSD relating to the Water System for the Fiscal Year beginning July 1, Additionally, Section 5.3 of the Water and Services Agreement, while not explicitly requiring DWSD-R to submit a stub year budget, does provide that the DWSD-R fiscal year 2016 budget be calculated as the portions of the DWSD Fiscal Year budget adopted on March 11, 2015 by the Board of Water Commissioners allocated to the Local Water System and the Local Sewer System ; i.e., DWSD-R. It should be noted that the allocation of responsibilities and charges listed in the service delivery schedules attached to the Shared Services Agreement between DWSD-R and GLWA, by agreement, will not alter the DWSD-R budget for Fiscal Year Given the requirements of the lease and the approaching stand-up of the GLWA organization, staff members of DWSD-R and DWSD have been meeting to establish an agreed upon methodology for bifurcating the fiscal year budget. This memorandum provides: 1. Key assumptions related to the budget bifurcation; 2. A summary of the of the results of the bifurcation meetings as it relates to O&M expenses; and 3. Next steps to be taken for finalizing the bifurcated budget. It should be noted that a similar status update was provided to the GLWA Audit Committee on October 2, Page 10

12 Analysis: Initial Budget, Proposed Adjustments, & Bifurcation Methodology The fiscal year 2016 budget formally approved on March 11, 2015 approximated $355.5 million. Since its initial adoption, several adjustments to the budget, totaling approximately $9.3, have been identified as necessary, bringing the total proposed budget for allocation to $364.8 million. Expenditure Reason Amount Transition Utilities & Contracts Ceridian Assist in stand-up up of bifurcation including incremental administrative and legal costs Incremental costs associated with roll-out of new entity wide cost center design GLWA cloud based payroll system $6.8 1 $1.9 $1.2 Given the relative uniformity of many expenses from quarter to quarter and for simplicity, DWSD-R and DWSD staffs, in consultation with The Foster Group, proposed that the total stub year budget, which spans two quarters, be equivalent to 50% of the total full year budget; i.e., $182.4 million. Results Based off initial allocations, approximately $78.8 million of baseline budgeted costs were to be allocated to DWSD-R, implying a base O&M stub year budget of $39.4 million given the aforementioned methodology. Additional allocations to DWSD-R will likely be made from incremental Transition Requirement (net of CGAP funding) and Utility & Contracts expenses (note DWSD-R will not incur any allocations related to the implementation of Ceridian which is 1 Figure is net of $3.8 million in CGAP funding Page 11

13 a GLWA only payroll system). Accordingly, we estimate the bifurcated DWSD-R O&M budget to approximate $39.4 to $43.5 million calculated as follows: Initial Budget Stub Year Budget (50% of Initial Budget) Low: Additional Expenses 100% Allocation of Incremental Expenses to GLWA High: Additional Expenses 100% Allocation of Incremental Expenses to DWSD-R * 50% Budgeted Range $78.8 $39.4 $0.0 $4.1 $ $43.5 Next Steps DWSD staff, its advisors, and the DWSD-R leadership are in weekly meetings to refine the methodology of bifurcating the budget, the potential amendments, opportunities to balance the budget, and a proposed budget document. We plan for BOWC approval to occur during the October 28 th, BOWC meeting after which we will seek approval from all other applicable governing bodies by November 23 rd. These actions are required so that the new operating water and sewer funds may be established in the City of Detroit s budget and accounting systems for the January 1, 2016 operational effective date. Given the nature of the refinements underway, we ask that the Finance Committee and BOWC approve the bifurcation of the initial budget at this time. Proposed Action: The Finance Committee recommends that the Board of Water Commissioners approve a budget amendment to establish the bifurcated budget for the new water and sewer retail funds as of January 1, 2016 based on the initial combined budget allocation of $39.4 million and authorize the DWSD Director and Director Designate to carry out all necessary actions to establish this operating budget. Page 12

14 T F G THE FOSTER GROUP P.O. BOX The Foster Group, LLC Leawood, KS Bart Foster, President Tel: (913) Cell: (913) Fax: (913) bfoster@fostergroupllc.com MEMORANDUM FY 2016 GLWA / DWSD-R Budget(s) October 9, 2015 To: Nickie Bateson From: Bart Foster You have asked for analyses and commentary regarding the preliminary bifurcated GLWA / DWSD-R operation and maintenance budget for FY 2016 and the overall impact on the original FY 2016 financial plan (the FY 2016 BUDGET ) approved by the Board of Water Commissioners, and that included in preliminary financial projections developed in support of bondholder consent activities. Specifically, you have asked for recommendations regarding potential allocations of the bifurcated budget that align with the overall guidance provided by the MOU, the Lease, the Service Agreements, and the Master Bond Ordinance. We note that the preliminary and/or projected financial operations of the water and sewer systems contained within this memorandum are unaudited and based on various assumptions and estimates that are subject to change pending additional review. Accordingly, readers should not place undue reliance on these projections. We caution that preliminary or projected results may and often do differ materially from actual results. Some of the factors that could cause actual results to differ materially from those projected are regional climate and weather conditions, and adverse legislative, regulatory or legal decisions (including environmental laws and regulations) affecting the Department s ability to manage the systems. Executive Summary Modifications to the original FY 2016 BUDGET revenue and revenue requirement plan are necessary due to subsequent modifications related to non-contract wholesale rates, final lease negotiations, and decisions made by the City of Detroit regarding application of the Lease Payment for FY Additional potential changes to the operating expense (O&M) portion of the FY 2016 BUDGET have been identified. These potential changes include transition expenses related to the separation and utility and contract expenses that were missed in the original budget. Page 13

15 FY 2016 GLWA / DWSD-R Budget(s) October 9, 2015 Page 2 The potential adjustments noted above could likely be accommodated through either budget amendments or fiscal notes. However the FY 2016 BUDGET must also be split into separate GLWA and DWSD-R entity portions, and 6-month stub period budgets must be established for both entities. The Lease negotiation process effectively froze the FY 2016 revenue profile for both entities, as no adjustment to rates and charges until FY 2017 were contemplated. Initial reported revenue for the early portion of the fiscal year appears to provide comfort that the original revenues in the FY 2016 BUDGET can be achieved. o Our review to date has been largely focused on billed revenue. Additional review and monitoring of cash collections is vital to monitoring this element. The potential operating budget increase can be accommodated within the frozen revenue profile for both entities. Absent offsetting modifications to the O&M budget, the increase would require a corresponding reduction in the amounts targeted to be transferred to the I&E Fund(s) for revenue financed capital in the FY 2016 BUDGET. Our initial review indicates that this can be accommodated for both entities within the stub period bifurcated budget. To the extent that final modifications result in an imbalanced BUDGET for either entity (and therefor negative revenue financed capital) we recommend consideration of a strategy that uses the shared services concept to balance the BUDGET for both entities, and maintains adjusted levels of revenue financed capital for both entities. Management continues to explore opportunities to balance the O&M element of the BUDGET(s) so as to not require adjustments to the revenue financed capital element of the BUDGET(s). [Remainder of page intentionally left blank] Page 14

16 FY 2016 GLWA / DWSD-R Budget(s) October 9, 2015 Page 3 We have reviewed the current version of the bifurcated operation and maintenance budget, as summarized in Ms. Casler s memorandum dated October 2. We understand that this version of the budget does not reflect final versions of the shared services agreements, which are still under development. Our initial task is to illustrate the potential impacts on the overall financial plan of adopting this version of the budget. Subsequently, we present potential approaches to result in a balanced overall finance plan, within the constraints established by the assumptions and general understandings. Baseline BUDGET The current anticipated implementation plan envisions a sic month stub period. The initial fiscal period for both the GLWA and the new DWSD-R entities is anticipated to consist of six months from January 1, 2016 through June 30, There are many approaches to trend budget amounts into specific months and partial periods. For simplicity of analyses, we ve assumed equal distribution of all budget amounts. So in essence the half-year budget is simply one-half of the budget for each item. The total baseline FY 2016 BUDGET (combined water and sewer) approved by the Board of Water Commissioners is shown in the following table, which also illustrates the allocation of the budget responsibility to the GLWA and DWSD-R entities that emerged from the cost of service analysis. Baseline (Annual) Partial Year (Jan - Jun 2016) Baseline GLWA Detroit Baseline GLWA Detroit BUDGET Wholesale Retail BUDGET Wholesale Retail Revenue $ millions $ millions $ millions $ millions $ millions $ millions 1 Suburban Wholesale Class Detroit Retail Class Subtotal Misc & Non-Op Revenue Total Revenue BUDGET 6 "Normal" O&M Expense Operating Pension Reimbursement Total Operation and Maintenance Debt Service Non-Operating Expense Budget Stabilization Fund WRAP Deposit Lease Payment Revenue Financed Capital / Reserves Total BUDGET Items Balance We note that this presentation of the budget allocated to entity follows the cash flow of funds stipulated by the recently approved Master Bond Ordinance. Under this presentation, there Page 15

17 FY 2016 GLWA / DWSD-R Budget(s) October 9, 2015 Page 4 are actually costs associated with the DWSD-R system (such as debt service and proportional allocations of the Lease Payment and other non-operating expenses) that are included in the GLWA Wholesale column, since that is where they will be paid. The DWSD-R column is limited to the funds (other than the Lease Payment) that will actually be transferred to DWSD-R from GLWA. The table then presents the partial (stub) year presentation of the approved budget, based on a very simplified assumption that the BUDGET can be effectively represented as uniformly incurred throughout the year. As noted in the table, the approved BUDGET included revenues from the Detroit Retail customer class totaling $ million. Approximately $76 million of this total was allocated to cash requirements of the DWSD-R entity, and the remaining $273.5 million was assigned to amounts that would be paid by GLWA, including the retail share of debt service and other non-operating expenses. After proportionally allocating budgeted miscellaneous and non-operating revenues to entity, the total DWSD-R annual cash requirement budget approved for FY 2016 was $85.5 million. Approximately $78.8 million of this amount was dedicated to the DWSD-R operating expense budget, with the remaining $6.75 million targeted towards transfers to the DWSD-R I&E Fund to finance capital improvements. The partial year budget simply reflects one-half of the annual totals, and result in a stub period DWSD-R BUDGET of $42.77 million. Adjusted BUDGET for Lease Negotiation and Final Rate Design Subsequent to adoption of the BUDGET by the Board of Water Commissioners, three significant modifications impacting expected revenues and revenue requirements occurred. 1. Modified charge structures for non-contract wholesale customers (GCDC and Highland Park) were finalized. These modifications had the impact of increasing expected revenue and amounts available for revenue financed capital and/or reserve funds. 2. Negotiation of the GLWA / DWSD-R Lease was finalized, and resulted in establishment of the Budget Stabilization Fund. Revenues from Detroit Retail customers originally targeted for revenue financed capital were effectively diverted to the Budget Stabilization Fund. 3. The City of Detroit opted to apply a portion of the Lease Payment to fund their allocated share of debt service. This had the effect of reducing the Lease Payment targeted for funding DWSD-R capital projects. The table below illustrates the modified BUDGET picture after incorporating the three modifications mentioned above. We note that this presentation does not reflect any modifications to the O&M budget for either organization. Page 16

18 FY 2016 GLWA / DWSD-R Budget(s) October 9, 2015 Page 5 Adjusted (Annual) Partial Year (Jan - Jun 2016) Adjusted GLWA Detroit Baseline GLWA Detroit BUDGET Wholesale Retail BUDGET Wholesale Retail Revenue $ millions $ millions $ millions $ millions $ millions $ millions 1 Suburban Wholesale Class Detroit Retail Class Subtotal Misc & Non-Op Revenue Total Revenue BUDGET 6 "Normal" O&M Expense Operating Pension Reimbursement Total Operation and Maintenance Debt Service Non-Operating Expense Budget Stabilization Fund WRAP Deposit Lease Payment Revenue Financed Capital / Reserves Total BUDGET Items Balance Adjusted BUDGET for Bifurcation Analysis Subsequent to the revenue adjustments noted above, additional potential changes to the operating expense (O&M) portion of the FY 2016 BUDGET have been identified. These potential changes are documented in Ms. Casler s memorandum of October 5 and Mr. Hudson s memorandum of October 12 and include transition expenses related to the GLWA / DWSD-R separation and utility and contract expenses that were missed in the original budget. They also include additional costs related to staffing two independent organizations, and the accompanying shared services concept that is being developed. In addition, ongoing financial planning efforts related to pursuit of bondholder consent have identified other minor planning adjustments for FY 2016 associated with to non-operating revenue (investment income) and debt service related to emerging SRF loans. We are of the opinion that these adjustments should also be reflected in any budget amendments / fiscal note references being considered. Establishing operating plans and budgets for the two independent, yet interrelated, organizations is a challenging initiative, particularly with respect to the shared services arrangement. The analyses to date have produced preliminary estimated allocations of budget expenditures to each organization, but such allocations are dynamic and are likely to change further as separate operating plans mature. Both Ms. Casler s and Mr. Hudson s memoranda identify a potential range of impact regarding the allocation of the potential budget modifications related to the newly identified items. After consideration of these items, Mr. Hudson s memorandum establishes a potential stub period DWSD-R operating expense of $39.4 million to $43.5 million. For purposes of this discussion, we ve assumed Page 17

19 FY 2016 GLWA / DWSD-R Budget(s) October 9, 2015 Page 6 that the approximate mid-point of the range will reflect the final O&M budget. Based on that assumption, the current estimated allocation of the potential modified FY 2016 BUDGET is illustrated in the table below. Adjusted (Annual) Partial Year (Jan - Jun 2016) Adjusted GLWA Detroit Baseline GLWA Detroit BUDGET Wholesale Retail BUDGET Wholesale Retail Revenue $ millions $ millions $ millions $ millions $ millions $ millions 1 Suburban Wholesale Class Detroit Retail Class Subtotal Misc & Non-Op Revenue Total Revenue BUDGET 6 "Normal" O&M Expense Operating Pension Reimbursement Total Operation and Maintenance Debt Service Non-Operating Expense Budget Stabilization Fund WRAP Deposit Lease Payment Revenue Financed Capital / Reserves Total BUDGET Items Balance We reiterate that the overall BUDGET for the DWSD-R organization is essentially fixed by the revenue budget approved by the Board, as modified by the final lease negotiation / rate design adjustments mentioned earlier. In other words, in this simplified analysis, the DWSD- R BUDGET for the stub year is locked in at the $42.77 million revenue figure. The allocation of this amount to O&M and capital elements is frankly not material to the overall picture, but it is important to develop fiscally responsible financial plans regarding the allocation of specific amounts. Having said that, we submit that that the potential operating budget increases identified herein can be accommodated within the frozen revenue profile for both GLWA and DWSD-R. To the extent that offsetting modifications to the O&M budget can be identified, this can be accomplished without shorting the planned generation of revenue financed capital (so long as actual revenues match budget expectations. Absent offsetting modifications to the O&M budget, the increases identified herein would require corresponding reductions in the amounts targeted to be transferred to the I&E Fund(s) for revenue financed capital in the FY 2016 BUDGET. Our initial review indicates that this balance can be accommodated for both entities within the stub period bifurcated budget. It is our understanding that GLWA/DWSD-R management continues to explore opportunities to balance the O&M element of the BUDGET(s) so as to not require adjustments to the revenue financed capital element of the Page 18

20 FY 2016 GLWA / DWSD-R Budget(s) October 9, 2015 Page 7 BUDGET(s). To the extent that final modifications result in an imbalanced BUDGET for either entity (and therefor negative revenue financed capital) we recommend consideration of a strategy that uses the shared services concept to balance the BUDGET for both entities, and maintains adjusted levels of revenue financed capital for both entities. We are prepared to present this material and discuss this matter at your convenience, and to finalize recommendations thereafter. Page 19

21 Great Lakes Water Authority Financial Services Group Audit Committee Communication Date: October 2, 2015 To: Audit Committee Excerpt from the Great Lakes Water Authority Audit Committee Binder for October 2, Complete binder available online at glwater.org From: Jenny Casler, CPA, Manager of Financial Planning & Analysis Detroit Water & Sewerage Department Re: GLWA FY 2016 Operational Budget (January 1, 2016 to June 30, 2016) Background: The target date for the Great Lakes Water Authority (GLWA) to assume operation of the regional water system operations is January 1, It should be noted, however, that the fiscal year for GLWA is July 1 through June 30. It was not necessary for GLWA to adopt a budget for the fiscal year commencing July 1, 2016 because there are no financial activities contemplated prior to the stand-up date of January 1, In preparation of standing up six month stub year budgets for GLWA and the new retail focused City of Detroit Water & Sewerage Department (DWSD-R), we are presenting a status update and key assumptions regarding the estimated operation and maintenance ( O&M ) budgets for these two organizations. Analysis: The starting point for this discussion is the existing DWSD FY 2016 Budget approved by the Board of Water Commissioners (BOWC). Since the approval of that budget by the Board of Water Commissioners in March 2015, three adjustments have been identified which equal approximately $9.3M, the details of which are provided below. DWSD FY 2016 Approved Budget, Amendments under evaluation Approved Budget (in millions) $355.5 Transition Budget (a) 6.2 Utilities and Contracts (b) 1.9 Ceridian Annual Software Exp. and 1.2 Implementation (c) Proposed Amended Budget $364.8 (a) Total Transition Budget of $10M. Amount shown is net of $3.8M CGAP funding. (b) Amounts omitted from initial budget estimates for utilities ($1.6M) and contracts ($0.3M) due to rollout of new, entity-wide cost center redesign (c) Annual cloud-based software and implementation expense, initially budgeted as a capital expenditure. Reclassifying to O&M given that amount represents an ongoing service. Page 20

22 Bifurcating the Budget The initial approach to bifurcate the budget midway through the fiscal year is to apply a high level split based on the established FY 2016 revenue requirement and related approved budget. This is due to three reasons. 1. The actual activity from July 1, 2015 through December 31, 2015 will not be available until after the operations for GLWA and DWSD-R begin. 2. Managing the budgetary impact of the shared services implementation will continue into the next fiscal year as DWSD-R and GLWA roll-out their individual stand-up plan. 3. The parties engaged in the lease discussions recognized the magnitude of the bifurcation effort in a short time. The pledge was made to stay true to the FY 2016 revenue requirement allocation. For these reasons, it is proposed that the initial O&M budgets for the last two quarters of FY 2016 would equal 50% of the full year of the combined O&M budgets for GLWA and DWSD-R. Adjustments to that opening budget allocation will be made when actual results become available. DWSD and the new DWSD-R staff are in the process of meeting to review the allocations between GLWA and DWSD-R. Based on the initial FY16 approved budget and revenue requirement calculations, 22% of the O&M budget was attributed to DWSD-R. The budget amendments under evaluation revise that allocation to an estimated 22-24% of the O&M budget attributable to DWSD-R. Based on the FY16 approved O&M budget of $355.5M, a half year of operations for both GLWA and DWSD-R combined would be estimated to total $177.8M. With the potential amendments, it is estimated that the O&M budgets for both organizations for a half-year would total $182.4M. Estimated Budgets for January 1, 2016 June 30, 2016 Total Estimated DWSD-R DWSD R as a % of total Based on Approved Budget $177.8M $39.4M 22% Based on Potential Amended Budget $182.4M $39.4M - $44.1M 22% 24% Potential Increase $4.6M $0 - $4.6M Next Steps DWSD staff, its advisors, and the recently hired DWSD-R leadership are in weekly meetings to refine the methodology of bifurcating the budget, the potential amendments, opportunities to balance the budget, and a proposed budget document. In October 2015, the GLWA Audit Committee and BOWC will be asked to review and consider their corresponding bifurcated budgets. Proposed Action: No action is proposed at this time. Page 21

23 AGENDA ITEM #7B City of Detroit Water & Sewerage Department Financial Services Group Finance Committee Communication Date: October 12, 2015 To: Board of Water Commissioners (BOWC) Finance Committee From: Jon Wheatley, DWSD Public Finance Manager Re: Resolution of the Board of Water Commissioners of the Detroit Water and Sewerage Department Authorizing Publication of Notice of Intent to Issue Sewage Disposal System Revenue Bonds in a principal amount not to exceed $125,000,000 (the Bonds ) Background: Purpose of the Bonds: The proceeds of the Bonds will be used for the purpose of paying all or a part of the cost of the rectangular primary clarifier rehabilitation project (PC-757), aeration system improvements (PC-796), Biosolids Dryer Facility Segment II (PC-792) and the Rouge River Outflow disinfection (PC-797) to the City of Detroit s sewage disposal system. The expenditures related to these projects were planned to be financed by a combination of existing funds, proceeds from new regular revenue bonds, and/or transfers of revenues. By obtaining this low cost financing for these projects, the other capital funds can be freed up to address other capital project needs, and the issuance of additional regular debt can be mitigated. Description of the Bonds: The Bonds will be issued under Public Act 94 of 1933, as amended, as Junior Lien Revenue bonds and are payable solely from the specific revenues of the sewage disposal system. The Bonds will be sold to the Michigan Finance Authority in multiple series as part of the State Revolving Fund ( SRF ) program for the State s fiscal year funding cycle. Justification/Analysis: The current program interest rate is 2.50% and is payable over a 20 year term. The Biosolids project qualifies for $2 million in Green Project Reserve principal forgiveness. Based on the combined project amounts of $125 million, DWSD could save an estimated $40 million in interest costs, avoided issuance costs and project costs savings based on a similar open market revenue bond with a 30 year term and 5.00% interest rate, over the life of the bond issues. Budget Impact: The first anticipated debt service payments on the Bonds will be October 1, 2016 and will be included in the FY 2017 Budget and thereafter. Proposed Action: DWSD management is seeking a Finance Committee recommendation to the BOWC to adopt the resolution as presented. Page 22

24 RESOLUTION OF THE BOARD OF WATER COMMISSIONERS OF THE DETROIT WATER AND SEWERAGE DEPARTMENT AUTHORIZING PUBLICATION OF NOTICE OF INTENT TO ISSUE SEWAGE DISPOSAL SYSTEM REVENUE BONDS WHEREAS, the Charter (the Charter ) of the City of Detroit (the City ) creates, pursuant to federal court order, a Board of Water Commissioners (the Board ) which has charge of the Water and Sewerage Department (the Department ). Pursuant to the Charter and Bylaws of the Board, the Board has authority to, among other things, enter into such contracts, make such purchases of goods and services and obtain financings as it deems necessary in order to conduct the business of the Department; and WHEREAS, the City intends to issue, directly or through the Department, and sell Sewage Disposal System Revenue Bonds pursuant to Act 94, Public Acts of Michigan, 1933, as amended, in a principal amount not to exceed $125,000,000 (the Sewage Disposal System Revenue Bonds ), in one or more series, for the purpose of paying all or part of the cost of acquiring and constructing facilities, replacements, extensions, improvements and repairs to the City s Sewage Disposal System (the System ); and WHEREAS, a Notice of Intent to Issue Bonds must be published at least 45 days before the issuance of the Sewage Disposal System Revenue Bonds in order to comply with the requirements of Section 33 of Act 94, Public Acts of Michigan, 1933, as amended ( Act 94 ); NOW, THEREFORE, be it resolved by the Board that: 1. Capitalized terms not defined herein and defined in the preambles hereto are used herein as therein defined. 2. The Chief Financial Officer of the Department (the CFO ) is hereby authorized and directed to publish a Notice of Intent to Issue Bonds in an aggregate principal amount not to exceed $125,000,000, or such lesser amount as shall be determined by the CFO, with respect to the Sewage Disposal System Revenue Bonds in the Detroit Legal News, the Detroit News or the Detroit Free Press, each of which constitute a newspaper of general circulation in the City of Detroit. 3. Such Notice of Intent shall be published as a one-quarter (1/4) page display advertisement in substantially the following form with such necessary or desirable changes as may be approved by the CFO, her approval to be conclusively evidenced by the publication of such Notice of Intent: Page 23

25 NOTICE TO THE ELECTORS, TAXPAYERS AND OTHER INTERESTED PERSONS OF THE CITY OF DETROIT AND TO USERS OF THE CITY S SEWAGE DISPOSAL SYSTEM OF THE INTENT OF THE CITY OF DETROIT TO ISSUE SEWAGE DISPOSAL SYSTEM REVENUE BONDS PAYABLE SOLELY FROM THE REVENUES OF SUCH SYSTEM AND THE RIGHT OF REFERENDUM RELATING THERETO. Please Take Notice that the City of Detroit, Wayne County, Michigan, (the City ) intends to issue, directly or through the Detroit Water and Sewerage Department, and sell Sewage Disposal System Revenue Bonds, pursuant to Act No. 94, Public Acts of Michigan, 1933, as amended, in a principal amount not to exceed $125,000,000 (the Revenue Bonds ), for the purpose of paying all or part of the cost of acquiring and constructing facilities, replacements, extensions, improvements, and repairs to the sewage disposal system of the City (the Sewage Disposal System ). SOURCE OF PAYMENT OF REVENUE BONDS The principal of and interest on the Revenue Bonds shall be payable solely from the revenues received from the operation of the Sewage Disposal System after paying costs of operation and maintenance of the Sewage Disposal System. Such revenues will consist principally of income derived from the rates charged to the users of the Sewage Disposal System, a schedule of which is presently on file in the office of the CFO and the City Clerk. BOND DETAILS The Revenue Bonds will be issuable in one or more series and from time to time. Each series will be payable in the principal installments as determined by the CFO, with the final installment due not more than 40 years after the original date of the respective series of Revenue Bonds. The Revenue Bonds will bear interest at the rate or rates to be determined upon the sale thereof, but in no event to exceed 18% per annum or such higher maximum rates permitted by law. RIGHT OF REFERENDUM THE REGISTERED ELECTORS OF THE CITY HAVE THE RIGHT TO FILE A PETITION FOR REFERENDUM WITH RESPECT TO THE REVENUE BONDS DESCRIBED IN THE FIRST PARAGRAPH OF THIS NOTICE. THE REVENUE BONDS WILL BE ISSUED WITHOUT A VOTE OF THE ELECTORS UNLESS A PETITION REQUESTING SUCH VOTE SIGNED BY NOT FEWER THAN 15,000 REGISTERED ELECTORS OF THE CITY IS FILED WITH THE CITY CLERK WITHIN 45 DAYS AFTER PUBLICATION OF THIS NOTICE. If such a petition is filed, the Revenue -2- Page 24

26 Bonds cannot be issued without an approving vote by a majority of qualified electors of the City voting on the question. Additional Information with respect to the above described Revenue Bonds, the Sewage Disposal System of the City, the rates to be charged, the projects to be acquired and constructed, repairs to be made and the costs related thereto, the financing thereof, and any other matters relating to the foregoing may be obtained from the office of the City Clerk or the CFO. This Notice is given pursuant to the requirements of Section 33 of Act No. 94, Public Acts of Michigan, 1933, as amended. Nicolette N. Bateson Chief Financial Officer Detroit Water & Sewerage Department City of Detroit, Michigan 4. It is determined that the foregoing form of Notice of Intent to Issue Bonds and the manner of publication directed is adequate notice to the electors and taxpayers of the City and users of the System and is well calculated to inform them of the intention of the City to issue the Sewage Disposal System Revenue Bonds, the purpose of the Sewage Disposal System Revenue Bonds, the source of payment for the Sewage Disposal System Revenue Bonds, and the rights of referendum of the electors with respect thereto, and that the provision of 45 days within which to file a referendum petition is adequate to insure that the City s electors may exercise their legal rights of referendum. 5. All resolutions and parts of resolutions insofar as they conflict with the provisions of this resolution be and the same hereby are rescinded. LAN01\ Page 25

27 AGENDA ITEM #7C City of Detroit Water & Sewerage Department Financial Services Group Finance Committee Communication Date: October 12, 2015 To: Board of Water Commissioners (BOWC) Finance Committee From: Jon Wheatley, DWSD Public Finance Manager Re: Resolution of the Board of Water Commissioners of the Detroit Water and Sewerage Department Authorizing Publication of Notice of Intent to Issue Water Supply System Revenue Bonds in a principal amount not to exceed $40,000,000 (the Bonds ) Background: Purpose of the Bonds: The proceeds of the Bonds will be used for the purpose of paying all or a part of the cost of constructing improvements to the City of Detroit s watermains (WS-693, WS-697 and WS-698). The expenditures related to these projects were planned to be financed by a combination of existing funds, proceeds from new regular revenue bonds, and/or transfers of revenues. By obtaining this low cost financing for these projects, the other capital funds can be freed up to address other capital project needs, and the issuance of additional regular debt can be mitigated. Description of the Bonds: The Bonds will be issued under Public Act 94 of 1933, as amended, as Junior Lien Revenue bonds and are payable solely from the specific revenues of the water supply system. The Bonds will be sold to the Michigan Finance Authority in three series as part of the State s Drinking Water Revolving Fund ( DWRF ) program for two City of Detroit watermain improvement projects approved for the State s fiscal year funding cycle, and an anticipated City of Detroit watermain improvement project in the State s fiscal year. Justification/Analysis: The current program interest rate is 2.50% and is typically payable over a 20 year term. Since these water main improvements are for projects within the City of Detroit, the loans qualify for disadvantaged community status and can be payable over a 30 year term and each project qualifies for $1 million in Green Project Reserve principal forgiveness. Based on the combined project amounts of $40 million, DWSD could save an estimated $17.5 million in interest costs, avoided issuance costs and project costs savings based on a similar open market revenue bond with a 30 year term and 5.00% interest rate, over the life of the bond issues. Budget Impact: The first anticipated debt service payments on the Bonds will be October 1, 2016 and will be included in the FY 2017 Budget and thereafter. Proposed Action: DWSD management is seeking a Finance Committee recommendation to the BOWC to adopt the resolution as presented. Page 26

28 RESOLUTION OF THE BOARD OF WATER COMMISSIONERS OF THE DETROIT WATER AND SEWERAGE DEPARTMENT AUTHORIZING PUBLICATION OF NOTICE OF INTENT TO ISSUE WATER SUPPLY SYSTEM REVENUE BONDS WHEREAS, the Charter (the Charter ) of the City of Detroit (the City ) creates, pursuant to federal court order, a Board of Water Commissioners (the Board ) which has charge of the Water and Sewerage Department (the Department ). Pursuant to the Charter and Bylaws of the Board, the Board has authority to, among other things, enter into such contracts, make such purchases of goods and services and obtain financings as it deems necessary in order to conduct the business of the Department; and WHEREAS, the City intends to issue, directly or through the Department, and sell Water Supply System Revenue Bonds pursuant to Act 94, Public Acts of Michigan, 1933, as amended, in a principal amount not to exceed $40,000,000 (the Water Supply System Revenue Bonds ), in one or more series, for the purpose of paying all or part of the cost of acquiring and constructing facilities, replacements, extensions, improvements and repairs to the City s Water Supply System (the System ); and WHEREAS, a Notice of Intent to Issue Bonds must be published at least 45 days before the issuance of the Water Supply System Revenue Bonds in order to comply with the requirements of Section 33 of Act 94, Public Acts of Michigan, 1933, as amended ( Act 94 ); NOW, THEREFORE, be it resolved by the Board that: 1. Capitalized terms not defined herein and defined in the preambles hereto are used herein as therein defined. 2. The Chief Financial Officer of the Department (the CFO ) is hereby authorized and directed to publish a Notice of Intent to Issue Bonds in an aggregate principal amount not to exceed $40,000,000, or such lesser amount as shall be determined by the CFO, with respect to the Water Supply System Revenue Bonds in the Detroit Legal News, the Detroit News or the Detroit Free Press, each of which constitute a newspaper of general circulation in the City of Detroit. 3. Such Notice of Intent shall be published as a one-quarter (1/4) page display advertisement in substantially the following form with such necessary or desirable changes as may be approved by the CFO, her approval to be conclusively evidenced by the publication of such Notice of Intent: Page 27

29 NOTICE TO THE ELECTORS, TAXPAYERS AND OTHER INTERESTED PERSONS OF THE CITY OF DETROIT AND TO USERS OF THE CITY S WATER SUPPLY SYSTEM OF THE INTENT OF THE CITY OF DETROIT TO ISSUE WATER SUPPLY SYSTEM REVENUE BONDS PAYABLE SOLELY FROM THE REVENUES OF SUCH SYSTEM AND THE RIGHT OF REFERENDUM RELATING THERETO. Please Take Notice that the City of Detroit, Wayne County, Michigan, (the City ) intends to issue, directly or through the Detroit Water and Sewerage Department, and sell Water Supply System Revenue Bonds, pursuant to Act No. 94, Public Acts of Michigan, 1933, as amended, in a principal amount not to exceed $40,000,000 (the Revenue Bonds ), for the purpose of paying all or part of the cost of acquiring and constructing facilities, replacements, extensions, improvements, and repairs to the water supply system of the City (the Water Supply System ). SOURCE OF PAYMENT OF REVENUE BONDS The principal of and interest on the Revenue Bonds shall be payable solely from the revenues received from the operation of the Water Supply System after paying costs of operation and maintenance of the Water Supply System. Such revenues will consist principally of income derived from the rates charged to the users of the Water Supply System, a schedule of which is presently on file in the office of the CFO and the City Clerk. BOND DETAILS The Revenue Bonds will be issuable in one or more series and from time to time. Each series will be payable in the principal installments as determined by the CFO, with the final installment due not more than 40 years after the original date of the respective series of Revenue Bonds. The Revenue Bonds will bear interest at the rate or rates to be determined upon the sale thereof, but in no event to exceed 18% per annum or such higher maximum rates permitted by law. RIGHT OF REFERENDUM THE REGISTERED ELECTORS OF THE CITY HAVE THE RIGHT TO FILE A PETITION FOR REFERENDUM WITH RESPECT TO THE REVENUE BONDS DESCRIBED IN THE FIRST PARAGRAPH OF THIS NOTICE. THE REVENUE BONDS WILL BE ISSUED WITHOUT A VOTE OF THE ELECTORS UNLESS A PETITION REQUESTING SUCH VOTE SIGNED BY NOT FEWER THAN 15,000 REGISTERED ELECTORS OF THE CITY IS FILED WITH THE CITY CLERK WITHIN 45 DAYS AFTER PUBLICATION OF THIS NOTICE. If such a petition is filed, the Revenue -2- Page 28

30 Bonds cannot be issued without an approving vote by a majority of qualified electors of the City voting on the question. Additional Information with respect to the above described Revenue Bonds, the Water Supply System of the City, the rates to be charged, the projects to be acquired and constructed, repairs to be made and the costs related thereto, the financing thereof, and any other matters relating to the foregoing may be obtained from the office of the City Clerk or the CFO. This Notice is given pursuant to the requirements of Section 33 of Act No. 94, Public Acts of Michigan, 1933, as amended. Nicolette N. Bateson Chief Financial Officer Detroit Water & Sewerage Department City of Detroit, Michigan 4. It is determined that the foregoing form of Notice of Intent to Issue Bonds and the manner of publication directed is adequate notice to the electors and taxpayers of the City and users of the System and is well calculated to inform them of the intention of the City to issue the Water Supply System Revenue Bonds, the purpose of the Water Supply System Revenue Bonds, the source of payment for the Water Supply System Revenue Bonds, and the rights of referendum of the electors with respect thereto, and that the provision of 45 days within which to file a referendum petition is adequate to insure that the City s electors may exercise their legal rights of referendum. 5. All resolutions and parts of resolutions insofar as they conflict with the provisions of this resolution be and the same hereby are rescinded. LAN01\ Page 29

31 2,200 2,000 1,800 1,600 1,400 1,200 1,000 2,147 AGENDA ITEM #8C1 DWSD Attrition Schedule As of September 30, ,024 1,751 1,535 1,458 1,512 1,358 7/1/2015 1,322 8/31/15 1,320 9/30/15 1,313 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16 FY FY FY FY FY FY 15 Projection FY 16 Projection Actual Page 30 Monthly Staff Count

32 AGENDA ITEM #8C2 City of Detroit Department of Water & Sewerage Finance Committee Date: October 12, 2015 To: Board of Water Commissioners Finance Committee From: Michael Huber, Implementation Team Manager Re: GLWA/DWSD-R Stand-up Monthly Update Background: This memorandum provides an update from the Project Implementation Team (PIT) regarding the separation and start-up of City of Detroit Water & Sewerage Department (DWSD) and the Great Lakes Water Authority (GLWA) as independent agencies. An update will be given monthly regarding the activities and initiatives associated with these efforts. Analysis: Below is an update on primary work streams. Day One Work Plan - The Day One Work Plan was presented at the Joint Board of Water Commissioners and GLWA Board Meeting on September 14 th. The information presented described the level of separation being planned for January 2016 as well as the functions that will have shared services in place. Shared Services - The Shared Service Agreement and its accompanying schedules has become the critical path item for the completion of the Conditions Precedent, as described in the leases. The first major milestone we have accomplished is receiving a coordinated direction from DWSD management and their City of Detroit counterparts on which functions as of Day One will require shared services between the agencies. All of the final drafts have been submitted to Gary Brown and Sue McCormick for review prior to the planned board distribution in the next coming days. With the aid of subject matter experts from the department and the customer base initial costing allocations have been documented for review and budgeting purposes. Over the next six months these costing methods will continue to be reviewed as additional data is available for more accurate allocation. Implementation Plan - Within the bifurcation process, there are a large number of tasks and projects to be completed. The PIT has been assigned to track the major projects and tasks in process and communicate the progress to the management team and boards. Currently, the first phase of implementation will focus on maintaining continuity of services for all of DWSD and GLWA s customers on Day One, implementing the new shared service agreement, and completing any must-have initiatives that have been identified. The next tasks identified for completion by Day One include operating protocols that will affect the departments that are being split for Day One. The protocols will document the process for completing the task and the coordination of responsibilities between the two organizations. Budget Impact: The status of the Transition Budget and State of Michigan Competitive Assistance Program (CGAP) is summarized below. Page 31

33 In order to simplify and coordinate the spending of the Transition Budget and GCAP monies, it has been decided to reallocate the CGAP monies within the Budget and close the CGAP Grant as soon as possible and to begin paying all remaining expenses from DWSD. As of September 24 th, there was $959,288 available for reimbursement within CGAP. The City of Detroit will be submitting $833,948 in invoices for reimbursement in the coming weeks. The plan is to submit the remaining $125,000 in invoices over the next 30 days in order to close the grant by the end of October. As of October 9 th, there has been $663,419 in expenses paid through the remaining Transition Budget. Of the $5.5 Million remaining, $2.2 Million has been planned for specific vendors and functions and $3.3 Million is available for future needs. The DWSD-R Executive Team that has recently been appointed will have their salaries as a part of this budget. In Summary: Funding Source Budget Spent Allocated Remaining CGAP 3.8 Million 2.8 Million 0.8 Million 0.2 Million DWSD O&M 6.2 Million 0.7 Million 2.2 Million 3.3 Million Total 10 Million 3.5 Million 3.0 Million 3.5 Million Proposed Action: No required action. Page 32

34 AGENDA ITEM #8C3 City of Detroit Water & Sewerage Department Financial Services Division DT: October 12, 2015 TO: Board of Water Commissioners (BOWC) Finance Committee FM: Jon Wheatley, Public Finance Manager RE: Update Wholesale Customer Contract Assignments Background: As one of the conditions precedent of the executed water supply system and sewage disposal system lease agreements between the City of Detroit and the Great Lakes Water Authority (GLWA) is to obtain the necessary wholesale customer water and sewer contracts assignments before the lease agreements can become effective. Those customers with model contracts require written consent to this assignment, and therefore require the adoption of a contract assignment by its governing body. Those customers not on a model contract do not have the same requirement, and those contracts automatically will be assigned. It is anticipated that all the necessary contract assignments will be completed by the December 31, 2015 deadline. Included for your review is the current status of the wholesale water and sewer customer contract assignments as of October 9, For the water system, GLWA has assigned 71 of 85 contracts (including Detroit), which represents 84% of the number of contracts, or 86% of the total budgeted revenues. For the sewer system, GLWA has assigned ALL 19 contracts. Customer Outreach: The five regional customer outreach meetings have been completed. The meetings were well attended and provided an open forum for wholesale customers to ask questions. These meetings were held in Canton Township on July 21, Shelby Township on July 23, the Village of Almont on July 27, Lathrup Village on July 28 and Brownstown Township on July 30. In addition, representatives from DWSD attended the August 13 meeting of the Macomb Area Communities Regional Opportunities (MACRO) meeting in New Baltimore. Page 33